Speaking at the FPA Congress in Sydney, Forte Asset Solutions managing director Steve Prendeville said a lot of the elements of success in exit planning are pretty much the same as they were 15 years ago, despite the FASEA changes.
“There is the expectation, at worst, that 14,000 will leave our industry,” he said.
“The reality … is that 14,000 have left our industry in the last five years, 5,000 have left in the last three years. So, I don’t subscribe to the falling of values purely because we’re going to have a shift in supply. We’re looking at the same shifts in supply that we’ve already been used to.”
In his presentation, Mr Prendeville focused mainly on the internal succession method as it is the one that has gained popularity within advice practices.
However, he noted that while it’s philosophically and intellectually appealing, it rarely happens.
“Yet the response of most of the people I’m talking to about FASEA is saying, ‘Don’t worry, I’ll have my people who have the education and I’ll just move up into a CEO or chairman-type role and be able to continue’,” Mr Prendeville said.
“We know the sales are coming up. With FASEA, all of a sudden we’ve got a retirement date of 1 January 2024, which we haven’t had before, yet only 12 per cent of our community actually have a succession plan or an exit plan.
“Those that are successful are the ones that are prepared for this.”
Risk specialists are well placed as their guarranteed renewal stream will be highly sought after against the background of lower fees and dwindling full-planning practice values, regardless of the FARCEA changes. Indeed, logic suggests risk practice prices will rise.
Until the ongoing trail is stopped, which it will be in the next few years, the writing is on the wall, trail will go and then where will be the value apart from a risk client list?
The valuations just revert to a more reasonable multiple of 1 – 1.5x as everyone has to actually service their clients to keep getting paid. How it should have always been.
Steve Prenderville is well placed to advise on exit plans. Google: Lanyon Prenderville. An embarrassing exit.
I think it was Kenyon Prendervile???
Typo i think my friend.
Kenyon Prenderville split leaves much to the imagination on how they can advise on exit strategies when theirs was not handled in maybe the best way?
And they want to call themselves a profession??? Financial advisers need to parctice what they preach….
Or get a Typo corrector !!!
If we refer to the E Myth, business owners should be doing ongoing due diligence to prepare their business for sale, whether or not they wish to sell. Let’s face it succession is the business we are in, yet only 12%, have the plan in place. It gives new meaning to “the plumber’s leaking tap”.
E Myth is a fantastic book – and I suggest reading the follow up to this if you haven’t already.
The problem that advice businesses have is that a large portion of them are built by Financial Advisers who are “technicians” and not true business owners. They want to be Advisers and set up the infrastructure to be great Financial Advisers. This isn’t a natural state for a business to be transitioned or “sold”. The pricing of financial advice businesses is falling, and it’s a reflection of the fact that most books aren’t businesses – it’s just a portfolio of clients who have a relationship with an Adviser. The client book is worth next to nothing, particular since abolishing a large portion of on-going commissions and requiring opt-in.
A business where people move up into a CEO type role is actually more likely to be operated like a proper business and set themselves up for sale than the traditional model where the owner of the business is an Adviser just creating a job for themselves.
I don’t agree . I have bought a few A good practice is easy to sell , its a cash flow annuity .Overall is really hard to stuff up a business if you still service the clients .
That’s under the old rules, everything is changing and the value of practice purchase is declining, especially as trails are the next thing to go and then where will your income trail be? Its a fools paradise to purchase a book of business now, especially as the values are dropping to 2X multiple. I have purchased a few in my time and did very well, but sold when i saw the debacle of what is happening to our industry.